Darkening recessionary clouds are steadily enveloping country after country. While the mayhem caused by Wall Street continues unabated, its impact on the real economy is rather difficult to fathom. The financial revolution and its dramatic collapse like a house of cards is finally transforming into what looks like a sharp downturn. “The markets are assuming that all of the structural benefits of globalisation have been whittled away and will not be repeated,” Peter Oppenheimer, a strategist at Goldman Sachs, told The Economist.
The underlying reality is finance played havoc with the real economy that produces goods and services for people to consume and survive. Those who depended on the production of these goods and services have not only suffered via depressed real wages during the last 30 years when the boom took the incomes of those in the financial sector to stratospheric levels. Consider the size of profits in the US financial sector, the locomotive for financial globalisation, during recent years. “The corporate profits of the financial sector of the US economy in 2004 were $300 billion, compared to $534 billion for all non-financial domestic industries, or about 40 per cent of all domestic corporate profits,” says William K Tabb, a New York-based academic. “They [profits of the financial sector] had been less than 2 per cent of total domestic corporate profits for years earlier, a remarkable indication of the growth of financialisation in the US political economy,” he argued in an article on the nature of the crisis facing global capitalism. Disturbingly, those in the productive economy will now have to face loss of jobs and retrenchment for the unpardonable blunders committed by those messiahs of the financial revolution.
So, where does the buck stop and does it stop anywhere? There are no clear answers yet. Yes, the United States Congress is currently going through motions to find out how it all happened. Those erstwhile heroes of “irrational exuberance” fame, like Alan Greenspan, are already admitting the “flaw[s]” and “mistake[s]” in their assessment of the credit boom and the housing bubble they unleashed on the world economy. Similarly, the pressure is mounting to put some of the high-profile Wall Street actors behind bars. Clearly, there is an urgent need for naming and shaming of all those who are responsible for creating this gigantic mess.
Beyond that, permanent lessons have to be drawn from the current “financial tsunami” so that they are not repeated again. Already, the price tag for the current and future generations to bring the global economy back on track is huge. Against this backdrop, the moot issue is whether the proposed summit of leaders from twenty major economies (the G-20) can really deliver some long-lasting lessons for the reform of the global financial system.
It is doubtful whether some of those very people that fuelled the current financial disorder can offer any surgical treatment. Since 2003, multilateralism is in tatters because of the violent pursuit of unilateral initiatives in the economic and military spheres. The person responsible for this drift towards unilateralism is none other than US President George W Bush. So, when he summons world leaders from 20 countries to “advance common understanding of the causes of the [financial] crash” and prepare “a common set of principles for the reform of the regulatory and institutional regimes for the world’s financial sectors”, it is hardly surprising there is a deep cynicism as to what this will achieve.
Besides, there is a tectonic shift in the global realities between Bretton Woods-I which took place in 1944 and now. With the presence of a host of emerging economies led by China , Bretton Woods-II will neither be dominated by the US and the UK as happened over sixty years ago, nor can it offer some timely palliative because the current crisis has mutated like a malignant tumour. Amid conflicting interests around the table next month in Washington , it will be too much to expect any radical policy prescriptions. For all we know, Karl Marx — whose Das Kapital is selling more copies in Germany this year due to the financial plague — might prove right once again when he said history repeats itself twice, “the first time as tragedy, the second as farce”!
